tv Nightly Business Report PBS September 21, 2011 6:30pm-7:00pm PDT
>> we were looking for the twist. we did get the twist. we got a little more. we got $100 billion more than expected. we were looking for the $300 billion range. we got $400 billion. >> susie: twist and shout-- the federal reserve twists and investors shout. stocks tumble after the fed launches operation twist, its latest effort to boost the economy. it's "nightly business report" for wednesday, september 21. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. my colleague tom hudson is on assignment. the federal reserve launched today a new plan to revive the economy. it's being called "operation twist." the goal is to lower long-term interest rates. here's how it works: the fed will sell short-term u.s. treasury bonds, replacing them with longer-term ones, creating a "twist" in rates. to help the mortgage market, it will continue buying mortgage- backed securities. operation twist is a $400 billion program lasting through june. the fed also said today it's keeping its key interest rate near 0%, saying there are
"significant downside risks" to the economic outlook. three fed policymakers voted against the twist. the stock market twisted too. the dow tumbled 283 points, the nasdaq lost 52 and the s&p dropped 35. investors were troubled by the fed's pessimistic view of the economy. in the bond market, long-term rates fell to their lowest level in 60 years. the 30-year now stands at 3.01% and the yield on the 10-year fell to 1.87%. suzanne pratt takes a closer look at the fed's decision and how it's being viewed on wall street. >> reporter: the federal reserve is not in the business of disappointing this place, but here at the new york stock exchange today, investors weren't happy with the latest gifts from the central bank. that's because the expected twist came with a twist. traders like alan valdes say the problem was that ben bernanke and company were particularly negative in their latest assessment of the u.s. economy. the statement that came along
with the decision read, "there are significant downside risks to the economic outlook, including strains in global financial markets." >> "significantly" wasn't in the last three meetings. he put that in this time, and that, i think, had a little trepidation to traders' minds when they saw that. we knew the economy was weak, but now it's getting significantly weaker going forward. that was a key word. >> reporter: some experts also noted that investors were upset about the division among fed members. and, traders also said the extra bit of stimulus from the fed, in the form of reinvesting mortgage debt, barely moved the needle for stock investors. >> i wouldn't say that it's a real non-event, but it's not enough to move the market. we just don't think it's going to work. at the end of the day, is this going to help unemployment? probably not, and that's the key. we need people working to get mortgages. >> reporter: the story was a bit different in the bond market today. yields on the 10-year closed at a record low and rates on the two-year climbed, just as the fed intended.
still, fixed income pro krishna memani says the concern is whether operation twist will work in the long term. >> we have tremendous headwinds for the economy. the growth rate is slowing down, the housing market is still in trouble and european issues are coming to some sort of bad conclusion-- none of that does not bears, bodes very well for the economy. >> reporter: investors are already betting today's fed action is the first in a series of steps to help the economy. can you spell q-e-3? suzanne pratt, "nightly business report," new york. >> susie: joining us now with more analysis, diane swonk, chief economist with mesirow financial. >> thanks for joining us. >> my pleasure. >> susie: let's kick off on that suzanne pratt just said.
is this the beginning of more stimulus. will we see more quantitative easing from policy makers? >> i'm not sure we'll get to qe 3, but if conditions continue to deteriorate in the economy, we will. this is a beginning step, hopefully a step to stem the losses in the u.s. economy and hopefully stimulate growth. but i think given the headwinds we're facing, we heard the headwinds are very sig can right now, and the best the fed may be able to do is offset those headwinds and keep the staltus quo. that's not good enough for most americans. it's not good enough for the unemployed and long term unemployed. but better than the alternative which is a second downturn. >> susie: that's what i want to pick up on. people have been waiting for a big plan to fix the economy, whether it's coming from the fed or from the white house. will this $400 billion plan make much of a difference? >> you know, it's not clear. on the margins, i think it
certainly will help. those who can refinance will be able to. not all homeowners can, because many are under water, but some will be able to refinance. the target of mortgage rates, although they've come down, but not in lock step with the bond yields that we've seen come down there, and the effort to buy mortgage backed securities and reinvest in those, and the fed trys to help that market a bit. but a bit is the word. we're not going to see major shifts from this, and that's a disappointment for some markets. the u.s. economy and the global economy is still at a lot of risk. >> let's bring it down to people who run a business and to american consumers, how does it help you if you're a business owner and what does it do to help american consumers? >> it does lower rates on many interest rate sensitive products, especially mortgages. so if you're close to refinancing, you probably just got a nice leg down in mortgage rates or would like to get more of a leg down in the next couple of weeks.
be careful whau wish for. thif it goes lower the economy is falling apart. they want to put spare change in the consumer's pocket so they can manage the debt better than they did. i think that's an important issue. whether is brings down credit card rates is still up in the air. there's other issues affecting the credit card market right now. but i think it's important. this is another factor helping anyone who is interest rate sensitive and business who does have a loan to restruct that you are loan or who is going to apply for a loan. it may be a little cheap every t. won't necessarily be easier to get, but it may be easy tore qualify for if it's a lower rate. the mortgages in particular have a lot of headwinds to them as well. >> susie: double dip recession? yes or no after that action today? >> it's a coin toss in terms of the risk. i don't think the fed took the risk of recession off the table in terms of this move. i think it's important this
move will coincide with other moves abroad and it's the coordination of policy shifts that really makes the bang for the dollar. that may make the difference. it's not just if we're growing through the turbulents. but if all have their oars in the water to row through the turbulent waters to get to the calmer waters. >> susie: let's talk about europe. we have a little time left. can the u.s. accommodate any headway as long as europe is in the debt crisis? >> that's a critical problem. the feds put a nod to the dmroebl instability we're facing and that being a major headwind. we can't stop europe from going down, but we hope for containment rather than contagion, and if europe acts in coordination -- and other central banks around the world acting in coordination, we may be able to avert another financial crisis and a global recession. that's clearly what the fed's
goal is to make a step towards that move to avert a really much worse economic senirio, not just in the u.s., but globally. >> susie: leave it there. diane, thank you. chief economist with mesirow financial. still ahead on the program, what traders are saying about today's fed action. hilary kramer joins us with tonight's "street critique." another management crisis at hewlett packard. there's speculation today that hewlett packard is preparing to oust c.e.o. leo apotheker after less than a year on the job. h.p. shares rose almost 7% to $23.96, but they are still down more than 40% this year. darren gersh takes a look at what's wrong with this legendary computer company and who could be the next c.e.o. to turn things around. >> reporter: today h.p. ran its own operation twist, leaving ceo leo apotheker twisting in the
wind while wall street celebrated news reports he will soon be fired. h.p did nothing to knock that speculation down, refusing to comment today. in less than a year on the job, analysts say apotheker made too many big moves and executed them poorly. the goal was to cook up a new h.p., one focused less on consumers and more on serving big businesses. >> so to make that omelet, he broke a couple of eggs, which is fine, but the way he went about it was more akin to throwing the whole basket on the floor. >> reporter: meg whitman is reportedly a likely successor as c.e.o. the former ebay chief is also a member of the h.p. board. whitman knows silicon valley and has run a big consumer technology company, but she would be taking on new challenges in reshaping h.p. as a software giant serving the world's biggest companies. >> the services and the software aspect that you need to really
be fluent in to cater to these large multinational corporations just requires a different skill set. >> reporter: what went wrong at h.p.? if he is ousted, apotheker will be remembered for missing earnings and losing the confidence of investors in his ability to reshape a technology legend. >> they keep setting goalposts and then erasing them or moving them. it's hard to have a sense that they have control over their destiny when they can't even figure out their short-term goals. >> reporter: given all the management shakeups and boardroom intrigue, the next c.e.o. may need a few years to turn around the perception that h.p. now stands for "has problems." darren gersh, "nightly business report," washington. >> susie: problems also for another tech giant today. google chairman eric schmidt faced hard questions today about whether the search engine gives google websites a leg up over other companies in its search results.
google dominates earch with 65% of the market and is under investigation by the ftc. schmidt told a senate antitrust panel google is constantly search results they want and does nothing to give itself the upper hand. from google to hewlett-packard to the fed, traders and investors were busy sorting through all the news. let's take a look at tonight's "market focus." bank of america was the dow's biggest loser and the most active stock here at the n.y.s.e. it fell over 7.5% after moody's investor service cut b-a-c's long-term debt by two notches. it's worried the bank can't count on government support in the event of another financial crisis. moody's also cut the long-term debt on wells fargo and citi's short-term rating. as you can see, both stocks plunged. after financials, materials were the weakest group. among the hardest hit? freeport mcmoran. analysts say a week-old labor strike in indonesia could cost
the company up to $19 million a day and hurt its quarterly results. the stock sank to a 52-week low of $35.59 a share. another hotbed for selling? coal stocks! they got burned on weaker outlooks. shares of alpha natural resources lost more than 17%. the company said its shipments to asia are down because of weak demand. also down? walter energy. shares fell almost 12% after the company trimmed its production targets for the second half of the year. those worries about coal producers took the steam out of rail stocks. coal transport is key for the railroads. norfolk southern, c.s.x. and union pacific all backtracked over 6%. takeover talk helped natgas producer range resources buck the trend today. the stock ended the day up almost 5%. it went as high as $69 a share in intraday trading on rumors it
was in talks to be acquired by royal dutch shell. neither company would comment. tech stocks also in the spotlight. we mentioned hewlett packard's near 7% jump today. but i wanted to show you a chart showing h.p.'s struggles since carly fiorina left the c.e.o. post in early 2005. the stock was $21.53, got as high as 54.20, now it's back to $23. adding to gains in tech? those strong oracle results we told you about last night. analyst reaction positive today. today, goldman sachs repeated a "buy" rating on oracle and boosted its price target by $2 to $35 a share. apple pushed higher into record territory earlier in the day, but got caught up in the late- day selloff, falling $1.31.
to $412. investor interest could change now that the "all things digital" blog says apple will roll out the iphone 5 on october 4. sprint, the expected partner on iphone 5, falling 2%. we've got technical analysis on apple on the blog, nbr on pbs.org. and that's tonight's "market focus." turning now to europe, some new developments today. european officials say they will return to athens next week continuing talks to solve greece's debt crisis. meanwhile, greece promised more austerity measures in an effort to prevent a default and to convince its partners of its commitment to stay in the eurozone. 30,000 civil servants will be suspended or put on partial pay this year, and pensions paying over $1,600 a month will be subject to new cuts. and the international monetary fund warned today that european banks face over $400 billion in potential losses from the debt crisis gripping the continent. the international lending agency says those debt problems have already cost european banks almost 275-billion dollars in
kramer of gamechangerstocks.com. >> susie: hi, hillary. nice to have you with us. >> thank you, susie. >> susie: did you spend the afternoon rejiggering your portfolios now that the fed changed strategy? >> well, there whip sawed around, but once we heard what the fed had to say it was like the wizard of oz. we weren't going back to kansas. ben bernanke and the fed, a mortal man, and the market is going to sell off, and hard. >> susie: are you making changes? >> yes, yes. now we have new kinds of stock that is we want to be in, given the new twist fed mandate. and that would be more growth stocks and utilities especially. >> susie: talk about utilities. you like con edison, tell me why? >> the utilities are doing there, and they've been able
to pass rate increases much better on to consumers and haven't had the same defaults individual institutionally. 4.2% dividend and that's what institutions and people want. >> and pannera bread is also on the buy list. does this fall into what category? a growth stock? >> exactly. you have tech growth stocks which are appealing, but you have pannera bread. it's that fast food that's appealing. it's like a starbucks, but a full meal, and there's room for growth, and chipotle went up five fold in the time it doubled in stock price. room for growth here. >> apem has been a core holding. you heard how we were reporting it. the stock was down. you're telling clients to tell it. what changed for you? >> we told at $420 yesterday, because how can apple maintain
30% margins. they have to start to contract. also we'll buy is it back $50 cheaper. you will be buying it back now that it's come out, and coming out with the iphone 5. >> i'm going to wait for the pull back. i think the pullback is coming. hedge funds, and hold man increased as many as others on the street. we'll see that stock start to falter if too many people are on that. and then the markets sold off. >> switch gears a little bit. you like financials even in view of the fed's new plan today, and a lot of the financials were down today. stocks like coldman sacks, why
are you sticking with them. >> i'm sticking with them, but it's a longer term scenario. it's going to be be hard tore make money and as we know they're not really deploying the cheaper money they have access to. that's still that sense of protection there, and also there's going to be contagion if the european banks fall. but generally our banks are strong, and j.p. morgan and goldman sachs are best of breed. >> susie: and europe, >> j.p. morgan, gold mann sachs, the key it to know it's longer term, and if you have money to deploy it's an area two years from now you'll be happy you went into the financials. > susie: and hillary, due own any of these stocks? >> i own con edison and j.p. morgan. >> susie: great to have you. >> thank you, susie.
>> susie: we've been speaking with hillary. here's what we're watching for tomorrow: we'll see weekly jobless claims and august's leading economic indicators, and earnings from carmax, discover financial, fedex and nike. also tomorrow, we'll talk with the international monetary fund's john lipsky about the global outlook and the financial health of european banks. despite a scandal over a government-supported solar panel maker, interior secretary ken salazar said today the obama administration will continue to support efforts to expand the solar industry. he says troubles at bankrupt solar panel maker solyndra highlight growth challenges facing the industry. while critics say the administration shouldn't be subsidizing solar, salazar points out the oil and gas industry have benefited from subsidies for years. some good news from the housing sector-- existing home sales posted their biggest gain in
with the fed keeping interest rates low and c.d.'s and savings accounts paying little interest, what can a retirement-minded investor do? tonight's "money file" has a fresh investment option. here's karen gibbs, founder of the "gibbs perspective". >> looking for income in a low- yield, volatile market? consider master limited partnerships, typically yielding 5% to 12%. m.l.p.s offer investors the opportunity to participate in an active, capital-intensive business with limited liability. most m.l.p.s are energy-related, involved in the building and operation of oil and natural gas infrastructure and benefit from the higher energy price trend. m.l.p.s are publicly traded on u.s. exchanges and offer the liquidity of common stocks, but aren't subject to corporate income taxes. taxes are only paid when distributions are received. by law, m.l.p.s must pay minimum
quarterly distributions to their limited partners. if the m.l.p. makes money, investors make money while getting the benefit of depreciation and amortization that flow through to the investor. m.l.p.s are appropriate for everyone. currently averaging a 7% dividend yield, they have a low correlation with stocks and bonds, making them an excellent asset for portfolio diversification, but they are subject to regulatory and interest rate risk, so do your homework. for the "money file," i'm karen gibbs. >> susie: you can keep up with n.b.r. any time. we're online at n.b.r. on pbs.org. there you'll find all the market data from the program, and you can watch any programs you may have missed. you can also follow us on twitter, @bizrpt or my personal feed, @sgharibnbr. we're also on facebook at bizrpt.
>> susie: and speaking of social networking, it's always a good idea to grow your professional network. so how about connecting with the president of the united states? president obama is hosting a town hall meeting on linked-in, the social networking website for professionals. he'll answer questions about jobs and the economy. if you would like to ask him a question, join the "white house" group on linked-in. the big day is monday. that's "nightly business report" for wednesday, september 21. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you.